Last month, Zimbabwe’s Hwange power station added two new units for generating electricity. This is a common occurrence for big infrastructure projects in Africa.
In a rural area of a country in southern Africa, government officials and the Chinese ambassador came together to celebrate and praise the expansion of a coal-fired plant. The purpose of the plant is to decrease power outages in the country, and China provided the funding for it.
The project received around $1 billion in loans from China several years ago. However, China has stopped funding new coal-powered projects overseas now. This project is just one of many expensive projects in Africa that are supported by Chinese lenders as part of Xi Jinping’s Belt and Road Initiative.
The money from China has made a big difference in Africa. People in big cities like Lagos, Nairobi, and Addis Ababa can now travel every day on new railways, highways, and airports built with Chinese loans and with the help of Chinese construction companies.
Now, as the world continues to build infrastructure for the past ten years, there are concerns about how Beijing will guide the initiative in the future. People are wondering if China will reduce its funding due to new challenges and changes in its plans.
China is facing challenges in repaying debts due to the economic impact of the Covid-19 pandemic and the war in Ukraine. Additionally, China itself is experiencing financial difficulties, and there is a growing need to address environmental concerns. These factors are putting pressure on how China lends money and how countries borrow from China.
New research from the Boston University Global Development Policy Center indicates that there is a noticeable change happening. They have observed a consistent decrease in the number of new loans given by Chinese organizations to African governments. This decline has become more pronounced in the last two years.
The amount of money lent through new loans decreased significantly. In 2016, it was at its highest point, $28. 5 billion, but last year it was just under $1 billion. This is the second year in a row that lending has dropped below $2 billion. According to researchers, this decline may not only be due to the pandemic but also a bigger change in lending practices. This could mean there will be fewer large loans given out in the future.
“The Belt and Road Initiative seems to be making adjustments,” said the report’s author, Oyintarelado Moses, when speaking to CNN.
And this phenomenon might not only happen with Chinese money in Africa.
Moses, a data analyst at the Global China Initiative, predicts that the new phase of Belt and Road lending will probably have less overall financing due to a decrease in loan averages worldwide.
However, it is difficult to know exactly how much money is leaving China to support global development because the government of China does not publicly disclose this information, and there are many different financial organizations involved.
The information from the Global Development Policy Center mainly looks at loans given by African governments or loans that have a guarantee from the government. This means that loans from China that are given directly to private individuals or companies for projects in Africa are not included in the data.
Some experts say that the main reasons Beijing became the world’s biggest lender to other countries are still the same. This means that Beijing will keep giving money to both big and small projects in the future, but we don’t know how much they will give.
What happens next can affect how much money developing countries get for building important things like roads and buildings.
Policymakers will be observing a big international forum happening next month in Beijing for clues about what will happen next.
Xi started a plan that would become very important to his foreign policy when he visited Kazakhstan in 2013.
There, the Chinese leader said that the ancient Silk Road should be improved so that countries can have stronger economic connections, deeper cooperation, and more opportunities for development.
After that, a lot of money in the form of loans has been given by both development finance institutions and China’s commercial banks to build railroads, power plants, highways, ports, and telecoms in developing countries.
This helped China’s economy by giving it a way to use its extra industrial capacity and money. It also helped China to make connections with over 150 countries and increase its influence around the world.
A lot of its friends have gained advantages from the new buildings and roads.
But the projects that fall under the Belt and Road initiative have caused concerns because of poor environmental and labor practices, as well as risky loans. Critics believe that China has burdened low- and middle-income governments with excessive debts compared to their economies.
Beijing disagrees with these statements and thinks that the initiative is a way for people all over the world to increase economic opportunities and share them with others. Beijing believes that this initiative can create new ways for economic growth.
Now, there are new economic situations happening because countries are still dealing with the effects of the pandemic while also being affected by higher interest rates and prices of goods caused by the conflict in Ukraine.
The most important thing we need to understand is that the time of low interest rates and cheap money from China going into these countries has come to an end. And now China is the largest country that collects debts in the world, said Ammar A. Malik is a senior scientist at AidData research lab in the US. The lab also keeps track of money that China gives to other countries.
The challenge for China is to ensure that these countries have enough money and that these projects work well, so that China can get their repayments with interest and on time.
In the past few years, some governments that owe money to China and other lenders have asked for more time to pay back their debts or for some of the debt to be forgiven. China has given loans to help out these struggling borrowers, and has also worked together with other lenders to come up with a plan to ease their debt burden.
Malik said that some countries with low and middle incomes may not be able to borrow more money because of their financial troubles.
But many poorer countries still want to get money for big projects that are important for their economies to grow. There are reasons for both China and the receiving countries to keep working together, so financing may not slow down.
China is currently facing tough economic challenges at home as it continues its second decade of the Belt and Road.
The economy was supposed to get better after Covid, but that hasn’t happened. Now, local governments are dealing with a lot of debt because of a property crisis.
We are not sure yet how much Beijing’s own economic problems will affect its lending to other countries in the future. However, Moses from the Global Development Policy Center says there are already some signs of impact.
Beijing is currently focusing more on using its foreign exchange reserves and increasing liquidity to address domestic challenges. This shows that lenders are now more focused on meeting the financial needs within the country.
However, despite the economic issues China is facing, some of the reasons why China was originally investing in global infrastructure projects, such as creating new investment chances in a slowing economy, are still important to them, says Austin Strange, a professor at the University of Hong Kong.
He said that this basic idea is probably still true as the slowdown continues, especially because tensions between countries are making it harder for Chinese companies in certain industries to invest more in developed countries.
Representatives from over 100 countries will meet in Beijing for a Belt and Road forum soon, and policymakers worldwide will be paying attention to see how the initiative will develop.
China is not just paying attention to loans getting smaller, but they might also focus more on environmental problems, improving social safety nets, and doing proper research. This is because Beijing and its banks are learning from the project’s first ten years, according to analysts.
A report from AidData in 2021 found that around 35% of projects under the Belt and Road initiative, which were managed only by Chinese organizations from 2013 to 2017, faced difficulties in their implementation. These challenges included issues related to the environment, corruption controversies, and violations of labor rights.
China in 2017 provided instructions on promoting an environmentally friendly Belt and Road initiative. It emphasized the need for sustainable development and the protection of the environment. Recently, officials have started asking for “small and beautiful” projects that they think local people will like.
In 2021, Xi promised that China will not construct any new coal power plants in other countries.
But compared to Western lenders who impose their own environmental and other rules on the projects they support, China has typically let the recipient country choose the type of project. This could restrict how well Beijing can achieve its environmental goals.
Researchers at the Global Development Policy Center say that in the future, when lending money to Africa, there will be fewer big loans of more than $500 million. Instead, there will be more loans with smaller amounts below $50 million, which will have positive effects on society and the environment.
China will probably keep providing money for projects that support its political goals and try to gain influence over the United States. The United States has also started its own programs to compete with China’s spending on foreign development.
China used to give a lot of money for big infrastructure projects around the world, but now they are probably giving less. However, there are probably still some countries near China that are enthusiastic about the Belt and Road Initiative and want to work with China.
If Chinese policymakers and project leaders have invested a lot to improve how they manage projects in the last ten years, then new projects should benefit from what they have learned in the past. “Looking back can be helpful in this situation. ”